Long term care is an insurance product designed to help cover costs for those who need long term health and medical care. People who use these benefits aren’t necessarily sick, but in many cases simply unable to perform routine tasks such as dressing themselves, bathing, eating, etc. These are referred to as “activities of daily living (ADLs).
The average median annual rate of nursing home care is $70,455 per year, and the average stay is roughly 3 years. It’s easy to see how quickly these expenses can eat into your retirement nest egg. One person can cost well over $200,000, while a married couple may approach half a million dollars.
Three types of LTC policies are available, each varying greatly in cost and benefits.
- Reimbursement is the first method. Repaying any long term care expenses incurred up to a maximum of benefits based on the terms of the policy. Benefits are only received once they are incurred. This is the most common of the three long term care policy types.
- The second method is indemnity. This policy provides benefits every day care is received by the individual.
- Lastly is a cash benefit. Cash benefits provide individuals with maximum benefits regardless if care was received or not.
Premium options vary based on the policy, but generally are able to be paid annually, semi-annually, quarterly, or even monthly, depending on the preference of the individual. As with most purchases, buying multiple policies or purchasing longer contracts (annually over monthly) will prove to be less expensive.
Long term care is a challenging facet of your retirement. The fact is many people can afford to “self-insure” – meaning their assets are substantial enough to weather a potential medical or healthcare storm.
Other individuals don’t have nearly the financial means necessary to cover such expenses, in which case the state will cover much of the associated costs after personal assets are depleted.
The third and trickier subset of retirees find that they have “just enough” assets which can be wiped away with a prolonged sickness. For example those retired couples with a million in liquid assets – a 500K hit to those assets to cover a couples long term care expenses could be financially devastating.
Determining exactly what you should expect to pay is rough without having the specific details of a plan in front of you. However, there are a few steps that can guarantee your choosing of the right package for your retirement future.
Determine your maximum benefit amount – Begin by finding out what the average long term care costs are in your local area.
- Choose how long you want to receive your benefits – The average stint of long term care lasts around 3 years; but this is just a generality. Consider family history and members of your family that have received long term care in the past when making your decision.
- Select your elimination period – This can be compared to a deductible in insurance planning. It’s the amount of time you must wait once you’ve been certified by a professional to receive your benefits. Generally, elimination periods can last anywhere from 0 to 365 days.
- Choose your inflation option – This option exists to make sure your policy withstands the devastations of inflation. You would typically be more aggressive in this category the younger you are because you most likely would not be utilizing your long term care policy for quite some time.
- Choose your additional features and benefits – This is the main reason why its difficult to pinpoint a price without specific policies in your hand. These options can range anywhere from survivorship benefits, returns on your premiums, and even spousal waivers.
I always recommend reviewing your situation with an expert in the field. While I am a Chartered Life Underwriter, and insurance licensed in Nevada – I do not sell insurance or insurance products. I do however have relationships with experts in the field.
If you feel long term care insurance may be necessary for your retirement planning – please contact me for a candid discussion and we’ll take appropriate steps from there to ensure you rest peacefully at night knowing these potential financial threats are under control.
